Review

• Kumpulan Fima Berhad (KFIMA)’s 1HFY20 results came in above expectations. Excluding the unrealised forex and other non-core items, 1HFY20 core net profit increased by 76.3% YoY to RM22.6mn. The improvement was mainly due to better product mix.

• Manufacturing: 1HFY20 PBT decreased by 11.2% YoY to RM13.2mn on the back of lower revenue and higher inventories written down.

• Plantation: 1HFY20 revenue dropped by 14.5% YoY to RM50.8mn as a result of lower sales volume and CPO price. Meanwhile, there were also no sales of CPKO registered in the current period. CPO sales volume decreased by 4.1% YoY to 21.1k tonnes. The average selling price of CPO also decreased to RM1,937/tonne (-3.6% YoY). This division registered a LBT of RM3mn compared to a core PBT of RM3.8mn.

• Bulking: Despite higher revenue, 1HFY20 PBT decreased by 12.0% YoY to RM17.5mn, mainly dragged by losses of biodiesel segment, which is in the process of optimising its biodiesel plant.

• Food: This segment recorded a PBT of RM8.5mn in 1HFY20 compared to RM10.1mn in 1HFY19 (-15.7% YoY). The weak performance was mainly due to higher operating cost and impairment of receivables as well as lower forex gain.

• There was no dividend declared for the quarter under review.

Impact

• Earnings forecasts are revised upward for FY20 - FY22 by 10.4% -18.6% after factoring in higher CPO price assumptions of RM2,400/tonne and RM2,500/tonne for CY20 and CY21, respectively. Besides, we also adjusted lower profit contribution from the Bulking segment.

Outlook

• We expect higher CPO prices for CY20 and CY21, underpinned by lower palm oil supply, firmer soybean oil prices and higher biodiesel mandates, which are expected to reduce palm oil stockpiles.

• However, we also expect a lower contribution from the Bulking division in the coming quarters due to lower CPO production, which may led to low palm oil inventories and created excess capacity for bulking business players.

Valuation

• KFIMA’s TP has been adjusted lower to RM1.83, based on DDM valuation. The TP implies a forward CY20 PER of 12.3x. Downgrade the stock to HOLD from Buy.

Source: TA Research - 27 Nov 2019